APPENDIX E: Example Cost-Benefit Analysis for Service Management Processes

This Appendix is intended as an example of how to quantify the costs and benefits of implementing the processes described in the IT Infrastructure Library. It is not intended to be comprehensive. Please be sure to substitute your own organisation's specific assumptions, purposes, costs, and benefits to get an example that is more suitable to your own circumstances.

In this example the following assumptions are made:

all employees cost $50 an hour
your organisation comprises 500 Users
the total number of Incidents is 5,000 per year
the average time to fix an Incident is 10 minutes
a working year has 200 days.

Example costs and benefits are set out below.

Process	Purpose	Cost/benefit examples
Configuration Management	Controlling the IT infrastructure Ensuring that only authorised hardware and software is in use	Following the implementation implementation of Configuration Management, the Service Desk has a much greater insight into the relationship between Users, CIs and Incidents. The 3 people assigned to Incident matching can be reduced to 2, resulting in a benefit of 200x8x$50=$83,300 per year.
Incident Management	Continuity of the service levels Underpin Service Desk function	The implementation of Incident Management has resulted in a decrease in down time per User; this is defined as the amount of time a User is on the phone to the Service Desk or cannot work because of a failure. If the downtime per User has gone down by 1 minute per person per day, this would save the organisation 500x200x$50x1/60 = $83,300 per year.
Problem Management	Minimise disruption of the service level	Suppose that the implementation of Problem Management decreases the amount of recurring Incidents by 500 (10% of total) per year. This means a revenue of 500x$50x10/60 = $4,000 per year.
Change Management	Efficient handling of Changes	Two Changes are implemented simultaneously, resulting in a major problem. The Customer support system fails, resulting in the loss of 50 Customers with an average purchasing power of $500. This has just cost your company $25,000.
Release Management	Ensuring authorised software modules are used Provide means to build Change Releases Automating release of software	Suppose that a new software module is released containing a bug. The previous version should be reinstalled, but due to poor version management, the wrong version is used, resulting in a system shutdown that lasts for 3 hours and affects two-thirds of all employees. This would cost the organisation 500x$50x3x 2/3= $50,000.
Service Level Management	Agree on and control the service levels Understand business needs	Thanks to a clear set of agreements, the Service Desk is less troubled with calls that are not part of the services offered. In this way the 4 Service Desk employees work 5% more efficiently, resulting in a gain of 4x5%x$50x8x200 = $ 16,000 a year.
Availability Management	Ensure high availability of services	Due to a physical error on a hard disk, a server supporting 100 people crashes. It takes 3 hours to have a new disk delivered and installed before starting up the system again. Costs: 100x3x$50 = $15,000. On a critical system, Availability Management processes would have highlighted the need for a mirror disk, which could automatically take over.
Capacity Management	Ensure the optimal use of IT	There is an overcapacity of 20%. Assuming your IT infrastructure cost you $5 million, you could gain up to $1 million by implementing Capacity Management and frequently reassessing the necessary capacity.
IT Service Continuity Management	Ensure quick recovery after a disaster	A water pipe breaks, flooding the server room. It takes 2 days to be fully operational. The average User has missed 10 hours of work. Total costs (apart from the pumping): 500x10x$50 = $250,000. Please note that a good contingency plan doesn't come cheap; however, the recovery costs (as in this example) could be dramatic - that is, if your organisation is still in business!
Financial Management	Provide insight, control and charge the costs of IT services	Imagine that the costs of IT services are charged to the departments that take them. A 10% reduction in the requests for new services would directly result in a 10% reduction of IT expenditure. The insight into the real costs in IT services proves to be surprising in practice; most Users don't have a clue about the costs.